Esops can change your life. They are probably the most valuable contribution that Startups make to the lives of employees who suffer low salaries and long hours while working in new Companies. However, ESOPs as a concept is confusing and complicated and needs to be understood well.
This is a humble attempt to demystify ESOPs.
[Ps - If you are browsing via a mobile device, click on the IN logo (linkedin) and directly view this deck on slideshare. The UX is much better :-)]
Hope this was helpful! Please provide feedback!
Thanks.. This Answers a lot of questions I always had.. !!
Alok - Again a masterpiece and a very useful repository of valuable information. Thank you and please keep sharing! Question though - Can you elaborate a bit on the contractor/consultant situation? I am currently working with multiple senior folks who are helping me in a part time capacity. Given that their contributions are important, I want to include them in the ESOP pool. Your response will help me out quite a lot.
Terrific guideline document . Only yesterday I was talking to our corporate attorney for ESOP and he said he wont do ESOP for a startup because its too complicated. Your compilation answers most of the questions comprehensively and will be a great guidelines for all the employees in our company.
I still have doubt over how you keep a face value of 10 to the VC and Re 1 for the employees.. Can we have shares of different face values at any given instant ?
Thanks for the compilation. I would nominate this for Oscars of Indian startups
the 'face' value of the shares are the same = Rs 1
The 'premium' we sell them to the VCs is Rs 4999 = Total Rs 5000
Ur Gyan is like bible of startup :) Awesome piece crisp n clear
Yeah !!! I finally understood the ESOP funda. Thanks.
But, How do we decide on number of shares ??
I dont think u paid attention to slide 9
No ... what I meant was - How do we decide on number of shares in the company.
That is - Out of 100% of the company - how many shares(number of shares) do we make 10000....100000 or a million.
???? thats a question of paid up capital
if u want a 1 lac paid up capital, you issue 1 lac shares of Rs 1 while starting the company.
Paid up capital attracts stamp duties in slabs!
I liked the presentation -crisp and precise. Just wanted to add one point - there is something called a cashless transaction as well. In such a scenario, you do not have to pay money at the time when the shares get vested. Instead, when you sell (say at the time of IPO), the company sells the ESOPs on your behalf and pay you the amount after deducting the issued price and taxes. That way employee doesn't have to shell directly from his pocket for buying these shares.
Yes - its just that you pay short term capital gains rather than lower long term cap gains and IF you leave the Company in between, then securing shares can be risky...